The Justice Department has been asked to review a merger request for a market with the following four firms.

If Firm C acquires Firm D, what is the HHI for the new market?

Question

The Justice Department has been asked to review a merger request for a market with the following four firms.

If Firm C acquires Firm D, what is the HHI for the new market?

Quizplus · Accepted Answer

To calculate the HHI, we need to first calculate the market share of each firm:

Firm A = 20/100 = 0.2
Firm B = 30/100 = 0.3
Firm C = 25/100 = 0.25
Firm D = 25/100 = 0.25

If Firm C acquires Firm D, their combined market share would be 0.25 + 0.25 = 0.5. We can calculate the HHI using the formula:

HHI = (0.2^2 + 0.3^2 + 0.5^2 + 0^2) x 10,000 = 6,796.875

Therefore, the answer is C.

The Justice Department Has Been Asked to Review a Merger